Mortgage Basics FAQ

Why do lenders require gift letters from people giving me money to buy a house? And what should my letter say?

Many homebuyers get help from friends and family in making their down payment. That's fine, but the lender wants to make sure the gifts aren't disguised loans -- in which case your debt burden is greater than you're pretending it is, and you may have trouble repaying the bank or institutional lender.

For this reason, lenders routinely require "gift letters" of anyone contributing money to your house purchase.

The letter itself can be fairly simple -- in fact, the lender may give you a form to fill out. It should say something like:

To Whom It May Concern:

We [donor's names] hereby certify that we have made [or will make, on a stated date] a gift of $[amount] to [names of recipients], our [child, sibling, grandchild, or other relationship between recipients and donors], to be applied toward the purchase of the property located at [address].

No repayment of this gift is expected or implied either in the form of cash or future services.

[Sign and date]

You'll need to give the original signed version to the lender.

Of course, a signed letter is no guarantee that you haven't made a separate verbal agreement with your donor that you'll repay the money. But doing so would constitute mortgage fraud -- a crime punishable by fines and jail time.

For More Information

To learn more about mortgages and intrafamily loans and gifts, get Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder and Marcia Stewart (Nolo).

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